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ARAMONY v. UNITED WAY OF AMERICA

January 4, 2000

WILLIAM ARAMONY, PLAINTIFF,
V.
UNITED WAY OF AMERICA, INDIVIDUALLY AND AS ADMINISTRATOR AND NAMED FIDUCIARY UNDER THE UNITED WAY OF AMERICA REPLACEMENT BENEFIT PLAN, AND AS ADMINISTRATOR OF THE UNITED WAY SUPPLEMENTAL BENEFITS AGREEMENT, UNITED WAY REPLACEMENT BENEFIT PLAN AND UNITED WAY OF AMERICA SUPPLEMENTAL BENEFITS AGREEMENT, DEFENDANTS.



The opinion of the court was delivered by: Scheindlin, District Judge.

OPINION AND ORDER

The issue on remand is relatively narrow. In 1984, UWA created a non-qualified pension plan ("Replacement Benefit Plan" or "RBP"), which was intended to replace benefits that could not be paid under UWA's qualified defined benefit pension plan as a result of limitations imposed by the Internal Revenue Code ("I.R.C."); Aramony was one of the executives eligible for the RBP. See Aramony I, 28 F. Supp.2d at 153. After trial, I concluded that UWA was estopped from arguing that Aramony was not entitled under the RBP to benefits offsetting the impact of 26 U.S.C. § 401(a)(17), because UWA had represented to Aramony that he would receive those benefits. See id. at 169-71. The Second Circuit disagreed, ruling that Aramony had not satisfied the requirement in ERISA cases that a party asserting promissory estoppel demonstrate "extraordinary circumstances." Aramony II, 191 F.3d at 150-53 (citing Bonovich v. Knights of Columbus, 146 F.3d 57, 63 (2d Cir. 1998)). The Second Circuit then stated:

We therefore reverse the determination of the district court that United Way is estopped from denying that the RBP provides a benefit offsetting the effect of § 401(a)(17). As part of its estoppel analysis, the district court decided, however, that the RBP was ambiguous on this point. We remand, therefore, so that the district court may consider whether United Way is contractually bound by the RBP itself to provide the benefit to Aramony.

Id. at 153. The parties have briefed the remand issue and have agreed to rely exclusively on the evidence already in the record.

I. BACKGROUND

Because the background of this case has already been described in detail, see Aramony I, 28 F. Supp.2d at 153-66, I will summarize here only the facts relevant to the remand issue.

UWA is a non-profit corporation organized under the laws of New York and having its principal place of business in Alexandria, Virginia. Id. at 153. UWA is governed by a volunteer Board of Governors and a full-time President and Chief Executive Officer ("CEO"). Id. The Executive Committee of UWA's Board of Governors ("Executive Committee") is a subcommittee of the Board of Governors that is authorized to adopt pension plans and executive compensation arrangements on behalf of UWA. Id. Aramony served as UWA's President and CEO from 1979 until March 16, 1992. Id.

The general practice at UWA was for the Executive Committee to adopt the concept of a pension plan, but not to decide the details of the plan. Id. at 153-54. Those details were worked out by Stephen Paulachak, a Senior Vice President of UWA and the person principally responsible for handling UWA's pension plans and executive compensation arrangements, and Mutual of America Life Insurance Co. ("Mutual"), with whom UWA had signed a group annuity contract. Id.

Consistent with its usual practice, the Committee expected that Paulachak would work out the specific terms of the plan with Mutual. Id. Paulachak informed Mutual that the Board had approved an RBP and requested that Mutual create a final plan document. Id. For reasons that are not entirely clear, Mutual did not provide Paulachak with a final plan document until May 1985. Id. On May 16, 1985, Paulachak signed Mutual's plan document on UWA's behalf. Id. UWA's highly paid executives, including Aramony, whose qualified pension benefits were likely to be affected by the I.R.C. restrictions, were eligible for the RBP. Id. at 153.

In 1986, Congress passed 26 U.S.C. § 401(a)(17), entitled "Compensation limit," which states:

(A) In general. — A trust shall not constitute a qualified trust under this section unless, under the plan of which such trust is a part, the annual compensation of each employee taken into account under the plan for any year does not exceed $150,000.
(B) Cost-of-living adjustment. — The Secretary shall adjust annually the $150,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period shall be the calendar quarter beginning October 1, 1993, and any increase which is not a multiple of $10,000 shall be rounded to the next lowest multiple of $10,000.

26 U.S.C. § 401(a)(17). Benefits are calculated under UWA's qualified defined benefit plan by multiplying a fixed ratio by salary (a five-year average) and multiplying the result by years of service. See Aramony I, 28 F. Supp.2d at 169 n. 21. Effective after January 1, 1988, § 401(a)(17) caps the amount of salary that may be used in this formula to calculate qualified benefits. Id.

On September 12, 1990, UWA's Executive Committee met to discuss a number of topics. See Pl.Ex. 30. At that meeting, the Executive Committee amended the RBP to add a component which would replace benefits lost under UWA's qualified benefit plan as a result of a change in the benefit formula mandated by the Tax Reform Act of 1986 (the "1990 Amendment"). See Aramony I, 28 F. Supp.2d at 155; Pl.Ex. 30, at 2-3. No plan document incorporating the 1990 Amendment was ever generated. See Aramony I, 28 F. Supp.2d at 155. At that same meeting, UWA's Executive Committee increased Aramony's 1991 salary to $365,000 (from $345,000). See Pl.Ex. 30, at 2. The minutes of this meeting indicate that Paulachak told the Executive Committee that the salary increase "was desirable to maintain growth in the President's pension base." Id.

In October 1988 and January 1989, Mutual sent Aramony estimates of his pension benefits. See Aramony I, 28 F. Supp.2d at 169. The figures contained in these estimates "reveals Mutual's belief that Aramony's RBP benefits would make up for the effect of § 401(a)(17) on Aramony's defined benefit plan." Id. In addition, "[t]he Annual Valuation Reports that Mutual prepared for UWA between 1988 and 1991 explicitly stated that Mutual had taken into consideration the effect of § 401(a)(17) on the RBP. The reports also contained benefit figures that were consistent with a § 401(a)(17) make-up benefit." Id. at 170 n. 23.

II. DISCUSSION

The Second Circuit remanded so that this Court could determine whether UWA was "contractually bound by the RBP itself to provide" Aramony with a benefit offsetting the impact of § 401(a)(17). See Aramony II, 191 F.3d at 153. If UWA must offset the impact of § 401(a)(17), then Aramony will receive $3,221,057 in pension benefits under the RBP; if not, then Aramony will receive $1,872,143. See Aramony I at 169-70 & n. 22.*fn1

Two provisions of the RBP are relevant to this issue. Article I, entitled "Purpose of the Plan," states:

This Plan is an arrangement for a select group of management and highly compensated personnel, and all rights hereunder shall be governed by and construed in ...

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